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2015 (10) TMI 2384 - MADHYA PRADESH HIGH COURT

2015 (10) TMI 2384 - MADHYA PRADESH HIGH COURT - [2015] 379 ITR 107 (MP) - Deduction u/s 80IB (10) (a) - whether the stipulation in Section 80IB(10)(a) of completion certificate issued by the Local Authority before the cut off date, cannot be applied in the case of assessee following the work in progress accounting method? - Held that:- Issuance of completion certificate, after the cut off date by the Local Authority but, mentioning the date of completion of project before the cut off date, does .....

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directory, in view of the express provision in Section 80IB(10)(a) and the Explanation (ii) thereunder. The completion certificate granted by the Local Authority must bear the date of having been issued before the cut off date.

The provision in the form of Section 80IB(10)(a), applies uniformly to all the assessees - be it following work in progress accounting method or otherwise. The benefit of deduction under this provision can be availed by the assessee following the work in progre .....

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an avail of the benefit provided completion certificate issued by the Local Authority is within four years from the end of the financial year in which the concerned housing project was approved by the Local Authority. If this condition is not fulfilled, the assessee who maintains work in progress accounting method and has claimed deduction under Section 80IB(10)(a) must suffer the consequence of disallowance or withdrawal of the benefit claimed by him on that count. Thus the decision of the Asse .....

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ment of the Income Tax Appellate Tribunal, Indore Bench, Indore dated 29.09.2011; and involve identical substantial question of law. 2. Briefly stated, the assessee, a partnership firm engaged in construction and sale of houses, claimed deduction for the respective assessment years under Section 80IB (10) in particular Clause (a), for ₹ 35,42,526/- (AY 2004-05), ₹ 23,42,464/- (AY 2005-06) and ₹ 9,62,915/- (AY 2006-07). According to the assessee, after the approval was granted b .....

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the project. The Local Authority later on, clarified vide letter dated 23.03.2011, that the date of completion of the project was 27.02.2008. Relying on the said clarification, the assessee contended that the project was in fact completed on 27.02.2008, before the cut off date; and for which reason the assessee was entitled for deduction within the meaning of Section 80IB (10) (a). The Assessing Officer, however, disallowed the claim of the assessee on the finding that inspite of repeated oppor .....

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s still being processed. On these facts the Assessing Officer proceeded to complete the Assessment proceedings and disallowed the deduction claimed by the assessee under Section 80IB (10) (a). Notably, the completion certificate issued by the Local Authority is of subsequent date and not issued within the stipulated date. 3. Being dissatisfied, the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals)-II, Bhopal and thereafter before the Income Tax Appellate Tribu .....

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with regard to the built up area, the Supreme Court in the case of CIT v. Veena Developers [2015] 277 CTR 297 has opined that the provisions inserted in Section 80IB w.e.f. 1st April, 2005, are prospective and not retrospective; and hence cannot be applied for the period prior to 1st April, 2005. That legal position has been restated in the case of CIT v. Sarkar Builders (2015) 277 CTR Reports 301. 6. During the hearing of these appeals, counsel for the department, in all fairness, submitted tha .....

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mended Section 80IB (10) (a). That benefit is available only to the specified housing projects (approved prior to 01.04.2005), completed within the prescribed time. 8. Accordingly, in all these appeals, the substantial question of law is about the sweep of the amended Section 80IB (10) (a); and consequently the correctness of disallowance of assessee's claim in that behalf, due to non-submission of the completion certificate issued by the Local Authority before 31.03.2008. 9. According to th .....

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be "the date on which the completion certificate is issued by the Local Authority". For that, sufficient time was provided to the developer to complete the project and to obtain completion certificate from the Local Authority well within time. In that, in the case of housing project approved before 1st April, 2004, it was required to be completed before 31.03.2008 irrespective of the date of approval. In respect of housing projects approved on or after 01.04.2004, the same were requir .....

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ature of this amended provision, it cannot be construed as having retrospective effect. Further, the developers of the concerned housing projects have been treated evenly by giving four years' time frame from the coming into force of the amendment to complete their project(s) and for obtaining completion certificate from the Local Authority within the same time. Any other interpretation would be flawed, as it would result in treating similarly placed persons unequally. In that, housing proje .....

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always open to the legislature to provide benefit of deduction, to be availed during specified period on fulfilment of certain conditions. Four years' time frame given to the respective class of developers, by no standards, can be said to be asking them to do something which was impossible. It is not a case of withdrawal of benefit or of any vested rights in the concerned assessee. No developer can claim vested right to continue with the project for indefinite period. Any such argument must .....

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tion 80IB (10) (a) has not been put in issue by the assessee. 10. The assessee on the other hand, primarily relies on the exposition of the Supreme Court to contend that it is well settled position that Section 80IB (10) as a whole has prospective application and would not apply to housing projects approved by the Local Authority before 01.04.2005. In any case, the assessee who maintains Books of Account on work in progress method, as in this case, would not be covered by the condition of obtain .....

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Local Authority prior to 31.03.2008 for issuance of completion certificate and the Local Authority finally issued completion certificate after 01.04.2008 indicating that the project was in fact completed before the cut off date, must be accepted on its face value for considering the claim for deduction. Even such cases will and must get the benefit under Section 80IB(10)(a). Taking any other view would result in asking the assessee to do something which is impossible and not within his control. .....

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mmissioner of Income Tax Vs. Happy Home Enterprises (2015) 372 ITR (Bom), Commissioner of Income Tax Vs. M/s Brahma Associates (2011) 333 ITR 289 (Bom), CIT Central Circle Vs. Anriya Project Management Services (P) Ltd. TAXMAN-Volume 209 (2012) 209 TAXMAN, CIT & Another Vs. G.R. Developers (2013) 353 ITR 1 (Kam.), CIT Vs. Radhe Developers (2012) 341 ITR 403 (Guj), CIT Vs. Tarnetar Corporation (2014) 362 ITR 174 (Guj), CIT Vs CHD Developers (2014) 362 ITR 177 (Delhi) 11. We may first, usefull .....

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m such housing project provided - (i) the construction/development of the said housing project commenced on or after 1st Oct.,1998 and was completed before 31st March, 2003; (ii) the housing project was on a size of a plot of land which has a minimum area of one acre; and (iii) each individual residential unit had a maximum built-up area of 1000 sq.ft., where such housing project was situated within the cities of Delhi or Mumbai or within 25 kms. from the municipal limits of these cities, and a .....

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ed before 31st March, 2001, the assessee was entitled to the deduction. By this amendment, the date of completion was also changed from 31st March, 2001 to 31st March, 2003. Rest of the provision remained the same. Later, by Finance Act, 2003, further amendments were made to Section 80-IB(10), which read as under:- "(10) The amount of profits in case of an undertaking developing a building housing projects approved before the 31st day of March, 2005 by a local authority, shall be hundred pe .....

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or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place." (Emphasis Supplied) 12. Section 80IB (10) was again amended by Finance Act No.2 (2004) w.e.f. 01.04.2005. The amended provision reads thus :- "(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profit .....

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al authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority. Explanation. - For the purposes of this clause,- (i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing is first approved by the local authority; (ii) the date of completion o .....

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dings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the board in this behalf. (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometers from the municipal limits of these cities and one thousand and five hundred square feet to any other place; and (d) the built-up area of the shops and other commercial est .....

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elation to the sweep of amended clause (a) of the provision. As per unamended clause (a), as was in force prior to 01.04.2005, the assessee was entitled for deduction of profits in case of housing projects approved before 31.03.2005 by the Local Authority. The only condition in clause (a) at the relevant time was, that the development and construction of the housing project had commenced or commences on or after 01.10.1998. This stipulation has been modified by the amended clause (a). As per ame .....

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should be completed within four years from the end of the financial year in which the housing project was approved by the Local Authority. The amendment further postulates that, the "date of completion of construction" of the housing project shall be reckoned on the basis of "the date on which" the completion certificate in respect of such housing project "is issued" by the Local Authority. 14. Reverting to the decisions of the Supreme Court, it is noticed that the .....

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ermitted under the Development Control Rules of the Local Authority would not change the character of the project. It must still be treated as a housing project. In the case of Sarkar Builders (supra), in paragraph 7, the Court has noted that in the cases before it all other conditions were fulfilled by the assessee, namely, the date by which approval was to be given and the date by which the projects were to be completed. The Court also noticed that the earlier decision of the Supreme Court wit .....

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ed time, it would result in absurd situation and also expecting the assessee to do something which was almost impossible. On that conclusion, the Court opined that the provisions such as clause (d) will have prospective application and not to the projects approved within the specified period. The Court noted that Clause (d) is to be treated as inextricably linked with the approval and construction of the housing project and the assessee cannot be called upon to comply with a new condition, which .....

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tures which appear in these cases : (a) In the present case, the approval of the housing project, its scope, definition and conditions, all are decided and dependent by the provisions of the relevant DC Rules. In contrast, the judgment in Reliance Jute and Industries Ltd. (supra) was concerned with income-tax only. (b) The position of law and the rights accrued prior to enactment of Finance Act, 2004 have to be taken into account, particularly when the position becomes irreversible. (c) The prov .....

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he basic objective behind S.80-IB(10) is to encourage developers to undertake housing projects for weaker section of the society, inasmuch as to qualify for deduction under this provision, it is an essential condition that the residential unit be constructed on a maximum built up area of 1000 sq.ft. Where such residential unit is situated within the cities of Delhi and Mumbai or within 25 kms. From the municipal limits of these cities and 1500 sq.ft. at any other place. (e) It is the cardinal pr .....

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he requirements of the residents. Therefore, in the year 2010, the Parliament has further amended this provision by providing that it should not exceed 3 per cent of the aggregate built up area of the housing project or 5000 sq.ft., whichever is higher. This is a significant modification making complete departure from the earlier yardstick. On the one hand, the permissible built up area of the shops and other commercial shops is increased from 2000 sq.ft. to 5000 sq.ft., On the other hand, thoug .....

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ts or shops also. Now, by way of an amendment in the form of cl.(d), an attempt is made to restrict the size of the said shops and/or commercial establishments. Therefore, by necessary implication, the said provisions has to be read prospectively and not retrospectively. As is clear from the amendment, this provision came into effect only from the day the provision was substituted. Therefore, it cannot be applied to those projects which were sanctioned and commenced prior to 1st April, 2005 and .....

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with all the conditions as set out in section 80-IB(10) as it stood prior to 1st April, 2005. If we were to accept the argument of the Revenue, then in that event, despite having completed the entire construction prior to 1st April, 2005 and complying with all the conditions of section 80-IB(10) as it stood then, the Assessee would be disentitled to the entire deduction claimed in respect of such housing project merely because he offered his profits to tax in the A.Y. 2005-06. In contrast, if th .....

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ng results. We therefore have no hesitation in holding that section 80-IB(10)(d) is prospective in nature and can have no application to a housing project that is approved before 31st March, 2005. As the deduction sought to be claimed under section 80-IB(10) is inseparably linked with the date of approval of the housing project, it would make no difference if the construction of the said project was completed on or after 1st April, 2005 or that the profits were offered to tax after 1st April, 20 .....

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in clause (d) of section 80-IB(10) has to be revisited and/or looked at and complied with in the assessment year in which the profits are offered to tax by the Assessee. When the Assessee claims a deduction under section 80-IB(10), the Assessee is required to comply with such a condition only if it is on the statute-book on the date of the approval of the housing project and it has nothing to do with the year in which the profits are brought to tax by the Assessee. We have come to this conclusi .....

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ng down any general proposition of law, save and except that clause (d) of section 80-IB(10) being a condition linked to the date of the approval of the housing project, would not apply to any housing project that was approved prior to 31st March, 2005 irrespective of the fact that the profits of the said housing project are brought to tax after the said provision was brought into force." (Emphasis Supplied) 16. The other decisions of the Bombay High Court as well as Karnataka High Court re .....

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Court extensively referred to the exposition in cases dealing with the efficacy of clause (d) of sub-section (10), as was considered by the Supreme Court in the case of Veena Developers (supra) and Sarkar Builders (supra). The Delhi High Court finally followed the principle stated by the Gujarat High Court in the case of Manan Corpn. v. Asstt. CIT (2013) 356 ITR Page 44 (Guj.) and has reproduced excerpts from the said decision to conclude and agree with the same - that the application of string .....

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id not complete the housing project within the statutory time frame. The Court, however, found that the assessee completed the construction well before the last date, namely, 31.03.2008 and also sold several units which was completed and actually occupied and it had also applied for BU permission to the Local Authority. The Court proceeded on the basis of the finding recorded by the Tribunal that the construction was completed in the year 2006 and the application for BU permission was submitted .....

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eviation thereof would not vitiate the very purpose for which deduction was being made available. With utmost respect, the decisions of the Delhi High Court and Gujarat High Court referred to above, do not persuade use to agree, for the reasons which we may allude to hereinafter. 18. In our opinion, however, the Supreme Court decisions in the case of Veena Developers (supra) and Sarkar Builders (supra) will have to be understood only in the context of a new condition stipulated regarding the bui .....

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in which the housing project was expected to be completed, to get the benefit of the prescribed deduction. Notably, the amended Section 80IB (10) (a) extends the benefit even to the housing projects approved by the Local Authority before 31.03.2007, instead of 31.03.2005 - as was provided in the unamended provision. Therefore, necessity was felt to make distinction between the two classes of housing projects for specifying the time frame for completion. The one approved by the Local Authority be .....

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stood, similar time frame for completion of housing project has been given to both class of housing projects. Moreover, the explanation below clause (a), in particular (ii), applies to both class of housing projects uniformly. It postulates that "the date of completion of construction of housing project" shall be taken to be "the date on which completion certificate" in respect of such housing project "is issued by the Local Authority". If Explanation (ii) is superi .....

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rity. No more and no less. Thus, enough indication and also sufficient time has been given to both the class of housing projects to fulfil that condition. The provision is in the nature of limiting the benefit of deduction to the specified housing projects, and not to those who fail to fulfil the requirement of completion of construction in time frame specified for the respective category of housing projects. This has been done in larger public interest - to ensure that the benefit is given only .....

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recedent to avail benefit of deduction. In the past, such stipulation was in place, but, later on, it was done away with. However, by amendment which came into effect from 1st April, 2005, the condition for completion of project within specified time has been reintroduced, while giving sufficient time (four years) to the assessee to comply for being entitled to get deduction. 22. A priori, it is not a case of imposing new condition, much less, with retrospective effect as has been argued before .....

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after 1st April, 2004. The four years period obviously has prospective effect, albeit limiting the period for completion of the project, to avail of the benefit. Four years' time frame for completion of the project, by no standards, can be said to be unreasonable, harsh, absurd or incapable of compliance. It is also not a case of withdrawal of vested right of the developer, as such. No developer can claim vested right to complete the housing project in indefinite period. The right arising f .....

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f the project is not completed within the stipulated time, the developer is free to get that period renewed or extended from the Local Authority as per the applicable Rules and Regulations. The provision for claiming tax deduction from profits, can certainly prescribe for reasonable conditions and more so time frame for completion of the project, in larger public interest. 23. Suffice it to observe that, no comparison can be drawn between the new condition prescribed in terms of clause (d) and t .....

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ear); and the purpose underlying the same - which is inter alia burden on the public exchequer due to waiver of commensurate revenue - the stipulation for obtaining completion certificate from the Local Authority before the cut off date, must be construed as mandatory. The fact that compliance of that condition is dependent on the manner in which the proposal is processed by the Local Authority, the provision cannot be construed as a directory requirement. It is a substantive provision mandating .....

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, would lead to uncertainty about the date of completion of the project which is the hallmark for availing of the benefit of tax deduction. Only with this intent the legislature in its wisdom has predicated that, "the completion of construction" of the housing project is taken to be "the date on which" the completion certificate "is issued" by the Local Authority. To interpret it to include an ex post facto certificate or such certificate issued by the Local Authori .....

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, in a given case if the assessee is able to substantiate that the completion certificate "was in fact issued" by the Local Authority before the cut off date, but could not be produced by him within time due to reasons beyond his control, the argument of substantial compliance of the provision can be tested. Any other interpretation would result not only in uncertainty (in finalization of assessment proceedings due to non-issuance or delayed issuance of such certificate by the Local Au .....

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offered to him on that count. 25. We cannot be oblivious of the fact that the Municipal Laws of different States are not uniform in respect of procedure for issuance of completion certificate. To wit, in some States, the dispensation provided is to issue partial or full occupation certificate; and thereafter issue completion certificate after removal of all the deficiencies pointed out by the Local Authority. In some States, the Municipal Law may provide for issuing partial or full completion c .....

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It can be safely assumed that the legislature was conscious of this position, for which, express provision has been made as to the meaning of the date of completion of the housing project linked to the "date on which" completion certificate "is issued" by the "Local Authority", as predicated in Explanation (ii) thereunder. 26. We accordingly hold that issuance of completion certificate, after the cut off date by the Local Authority but, mentioning the date of compl .....

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ocal Authority before the cut off date is not directory, in view of the express provision in Section 80IB(10)(a) and the Explanation (ii) thereunder. The completion certificate granted by the Local Authority must bear the date of having been issued before the cut off date. 27. That takes us to the argument of the assessee that the stipulation in Section 80IB(10)(a) of completion certificate issued by the Local Authority before the cut off date, cannot be applied in the case of assessee following .....

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